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I've read that the NFL is renouncing its non-profit status and that it's a move to pay a little tax and in return, it doesn't have to publish its executive salaries. This got me thinking about sports franchise taxes. I've also read about some of the weird tax tricks that involve amortization, which as far as I understand it allows a team owner to write off the depreciation of his or her roster as if athletes were the same as a photo copier. I've also read that they get to amortize the entire purchase price of the franchise itself. What does this really mean in application to their taxes/revenue/profitability on paper, and why do teams get to do this?
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Apr 28, 2015 20:41
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| # ¿ May 9, 2024 23:38 |
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These are the two resources I've found: http://www.forbes.com/sites/mikeozanian/2012/04/06/new-dodgers-investors-will-get-big-tax-breaks/ and http://heathoops.com/2014/11/a-history-of-tax-sheltering-for-sports-team-ownership/quote:"Say, for example, a certain basketball team projects to generate around $100 million of annual basketball-related pretax income... But let’s say I decide to set up a new S Corporation (a pass-through entity) to purchase the team from the owner for $2 billion. Let’s conservatively say that my tax accountant allocates 90 percent of that purchase price to all the various intangible assets (including goodwill). I now get to deduct $120 million in amortization expenses ($2 billion * 90 percent / 15 years) from the pretax income generated by the team because I bought it. As far as the IRS is concerned, my team is no longer generating $100 million of pretax income; instead, it’s losing $20 million. There's also this piece: http://deadspin.com/5816870/exclusive-how-and-why-an-nba-team-makes-a-7-million-profit-look-like-a-28-million-loss I don't quite understand how the roster depreciation works, but I do understand that fundamentally the sports franchise doesn't really exist as a physical entity and therefore much of its value isn't really on paper, whereas you can make all your costs appear on paper to show a loss when the team is actually making money.
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May 1, 2015 00:30
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